County ends 2012 with slim surplus

Erie County ended 2012 with a $4.2 million surplus, despite dire midyear warnings from County Executive Mark C. Poloncarz that the county could be confronted with a multi-million budget hole.

But county officials remain concerned about whether sales tax – the county’s single largest revenue source – can continue the growth it has seen since the region pulled out of the recession. If not, the county faces a rough financial road ahead in a year in which lawmakers already view the budget as tight.

The Poloncarz administration set the bar for sales tax growth in 2013 higher than it’s been in recent years.

The county’s sales tax revenue last year grew by 2.43 percent compared with the previous year, just about hitting the county’s budget expectations for 2012. But this year, sales tax would have to grow another 3.73 percent to bring in the amount of revenue county lawmakers expect.

County Comptroller Stefan Mychajliw, in a year-end report he will release today, said his office had “deep concern over aggressive sales tax revenue projections” and noted that could cause “significant gaps” in this year’s budget.

“We have no control over what sales tax revenue is going to be,” Mychajliw said. “And it’s a dangerous concoction when you are overly optimistic and aggressive on a revenue that you have zero control over.”

Mychajliw’s concerns echo years of similar warnings about the county’s reliance on a volatile revenue source over which it has no control. Wall Street rating agencies that periodically analyze the county’s finances have expressed concerns that sales tax revenue makes up more than a third of the county’s spending.

The Erie County Fiscal Stability Authority in February also raised concern that the county would not meet its budget targets and noted that “recent trends point to a flattening of sales tax revenues in 2013, with a potential for a shortfall in this account.” The county’s 10-year average increase in sales tax receipts is just over 2.6 percent, according to the stability authority.

County Budget Director Robert Keating said the county’s view of 2012 sales tax growth in early fall, when the proposed budget was printed, was higher than the numbers turned out to be. At that point, the Budget Division estimated that the county would see 3.15 percent sales tax growth by the end of 2012. Instead, the county’s share of sales tax revenue grew by 2.43 percent to $410.7 million.

Based on projections available in early fall, the Poloncarz administration estimated that the county would take in $426 million this year – a number Keating said looked “ambitious, but realistic” at the time the budget was released.

“Every month you get better data as you get closer to year-end,” Keating said.

County sales tax revenue has seen wide fluctuations in recent years, when consumer spending was hit by the recession and rebounded. Sales tax collections dropped by about 3 percent to $375 million in 2009, before climbing back up. In 2011, the county saw 4.5 percent growth compared with the previous year as the county’s share of sales tax grew to $401 million.

Those figures do not include sales tax revenue that the county receives but passes on directly to local towns, villages and school districts.

Gary D. Keith, an economist with M&T Bank, said the 2011 jump in sales tax was “pretty typical of a recession recovery pattern” as retail spending bounced back.

“You fall into such a deep hole, the first step out of it seems pretty significant,” Keith said. “As you get further out of the hole, though, that pace slows down in terms of year-over-year change.”

While growth in sales tax revenue so far this year has appeared slow compared with the same months last year, county officials do not yet have a full quarter of sales tax data to review. Keating said other areas of the 2013 budget have been better than expected.

Last year, Poloncarz issued a stern warning ahead of the county’s midyear budget hearings that the county faced the potential for a “significant shortfall” at the end of 2012 because of unbudgeted expenses. The prediction did not pan out, and the county instead ended 2012 with a slim surplus, according to unaudited numbers.

At the time, budget officials estimated that the county could face $34 million in unbudgeted expenses related to federally mandated payments for Erie County Medical Center. Some of those payments were pushed into 2013, and the county has since worked out a deal with the hospital to spread those payments out into future years. Under that arrangement, ECMC reimburses the county for a portion of the payments, and the county will pay that back in future years.